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5 Marks of Integrity-Driven Businesses

What sets integrity-driven businesses apart from the rest?

Highly publicized ethical scandals, conflicts of interest, and unchecked greed expose how business leaders' failure to act with integrity can harm consumers, investors, and other stakeholders. In addition, these scandals can impose costly reputational damages that hurt business' bottom lines. While most businesses seem to understand these risks, some apologists suggest that businesses are unable to promote integrity-driven behavior among fully grown adults, whose characters have already been shaped by their upbringing.

But our businesses may still have hope. In a recent interview, Jim Thomas, author of Integrity: The Indispensable Element and founder of Alliance With Integrity, pointed out five steps businesses can take to establish cultures of integrity and prevent employee misconduct. He also provides some tips consumers and investors can use to determine whether businesses have cultures of integrity.

5 ways to bolster integrity-driven behaviorThomas argues that it isn't enough for businesses to be concerned about ethics, which he claims deals mainly with prohibitive guidelines; he claims businesses should also be focused on integrity, which he claims involves "standing by the right ideas" even when there is no legal requirement to do so.

Jim Thomas outlines five key steps businesses can take to bolster integrity-driven behavior in the workplace.

First, businesses should have a third-party measure the organization's reputational capital. The assessment should determine how the business is viewed by those outside of the company, such as customers, investors, vendors, and members of the communities where the organization operates. For example, businesses should try to learn whether these groups think they stand behind their products and delivers on their promises.

Second, businesses should conduct an internal evaluation of the level of integrity held by those within the company. This evaluation should determine whether everyone in the company understands what integrity means, whether they perform with integrity even when nobody is watching, and whether they are accountable for their actions.

Third, businesses should formulate Code of Integrity or Integrity Credo -- a statement that sets out what integrity really means -- and post it in offices and work rooms throughout the company to serve as a constant reminder of its importance. Thomas praises Morgan Stanley(NYSE:MS) for creating a Code of Integrity, titled "Lead With Integrity," and enforcing the expectations outlined in the document.

Fourth, businesses should educate employees on what integrity means. Wal-Mart(NYSE:WMT) is currently responding to allegations of international bribery. According to Thomas, the company took a step in the right direction by using its 2012 international employee pep rally as an opportunity to provide its employees with some guidance in this area. CEO Mike Duke used this forum to pinpoint "playing by the rules" as a fundamental feature of integrity, to which International Division Chief Doug McMillon added "playing by the rules when no one is watching."

Finally, Thomas claims that businesses should follow the advice of Harry Beckwith, marketing leader and author of Selling the Invisible, and "always tell the truth. For even when it hurts, it will help."

Building a competitive edgeThomas argues that while integrity requires doing the right thing even when it involves great sacrifice, businesses that consistently act with integrity promote their bottom lines by building a competitive advantage over time.

One case that clarifies the benefits of business integrity is Johnson & Johnson's (NYSE:JNJ) famous response to the Tylenol poisonings that occurred in 1982. Even though it wasn't responsible for the tampering that occurred after the product reached the shelves, the company decided to shoulder responsibility for consumer safety and remove its product from the shelves.

Tylenol had to pay a high short-term price for its decision to act with integrity, seeing its market share decline from 37% to just 7%. Its recall of more than 31 million bottles of Tylenol resulted in losses of more than $100 million. When the product was reintroduced into the market, it was packaged in tamper-resistant packaging to protect consumers.

This case helps illustrate how integrity-driven behavior helps businesses foster trust and builds a stronger reputation among customers, investors, and other stakeholders. Such goodwill can pay dividends as it draws in more consumer and investor dollars.

Spotting integrity-driven businessesAs consumers, we wish to patronize integrity-driven businesses because they're less likely to cheat us, and more likely to offer products and services that actually benefit us. As investors, we wish to patronize integrity-driven businesses both because they gain consumer loyalty, and because those businesses are also more likely to treat their investors fairly and honestly.

But other than heeding the lessons learned through painful trial and error, how can we identify these trustworthy businesses?

Jim Thomas suggests that one strategy is to look for businesses that stand behind their products. If a business tells the truth about its products and takes responsibility for cases in which its products don't deliver promised benefits, that sends a pretty strong signal that the business deserves our trust. In the case of Johnson & Johnson, its willingness to stand behind its Tylenol product even in cases of external sabotage demonstrated its commitment to an even higher standard of commitment to its products and customers.

For investors putting large amounts of money into a company, Thomas also recommends verifying that the business has a published Code of Integrity.